Advanta has filed Chapter 11 according to Business Week. Advanta was an issuer of high rate credit cards to small businesses. The filing will trigger the FDIC to take over the “bank” and probably start a legal fight over whether assets were removed from the “bank” and placed into the parent holding company to keep them away from the FDIC and other bank creditors. Advanta’s “bank” is currently holding $2.7 billion in credit card accounts from 360,000 customers.
The FDIC is meeting on Thursday to tackle the general subject of how to treat banks that have securitized credit card portfolios and sold them off to investors. Securitizaation is the same process that caused the massive problems with Freddie Mac and Fannie Mae when defaults exceeded allowable limits.
